Okta Crude Oil Refinery AD v Mamidoil-Jetoil Greek Petroleum Company S.A. & Anor

This is an appeal from two judgments of Aikens J whose initial synopsis of the cases I gratefully adopt with only minor additions and amendments.

There were two actions which were tried together and which took place against the background of a long–standing quarrel between two branches of a Greek family and the tumultuous events in the Balkans over the last decade. They concerned contracts relating to the supply and “manipulation” (ie. handling) of crude oil. The defendants (“Okta”) are the owners of a refinery at Skopje, now the capital of the Former Yugoslav Republic of Macedonia (“FYROM”). FYROM is a landlocked country and oil has to be shipped there in trucks from the nearest ports in Greece. The first Claimant (“Jetoil”) is a Greek company. Jetoil entered into a contract with Okta in 1993 (“the 1993 contract”), which gave Jetoil the exclusive right of manipulation, at their terminal in Thessaloniki, Greece, of non–heated crude oil bought by Okta for their own account. That contract also gave Jetoil a right of “first refusal” to supply crude oil to Okta. It contained an English law and arbitration clause.

In the first action (1999 Folio No 1513) Jetoil claimed damages for breach of the 1993 contract, which was concluded on 5th March 1993 and stated that it was valid for 10 years, ie. until March 2003. Jetoil’s claim was made under two heads. First Jetoil alleged that, from July 1999, Okta failed to permit Jetoil to manipulate, at their terminal in Thessaloniki, all the non-heated crude oil that Okta had bought for their own account (as opposed to a purchase for any other party). Jetoil asserted that this failure continued until the time of the trial. The second head of claim was for alleged breach by Okta of the obligation to give Jetoil the right of first refusal to supply crude oil to Okta.

Okta accepted that, since July 1999, they had failed to permit Jetoil to manipulate the non–heated crude oil that Okta had bought for their own account. Okta also accepted that since July 1999 they had not afforded Jetoil the right to exercise a first refusal to supply Okta with crude oil that Okta wished to buy for their own account. Okta said that the FYROM government sent letters to Okta dated 16th and 26th November 1999 and then again on 30th May 2001. Okta submitted that the letters were a request that Okta should not perform the 1993 contract within the meaning of a “force majeure” clause in an annex to the 1993 contract which stated that neither party would be responsible for damage caused by failure to perform the contract if that failure was attributable to

“acts or compliance with requests of any governmental authority. . . . . . . . beyond the control of the party affected”.

Okta submitted that they could rely on this “force majeure” provision of the 1993 contract to avoid any responsibility for their admitted failure to perform that contract since July 1999.

Jetoil denied that Okta’s failure to perform the 1993 contract was attributable to a request by the government of FYROM to Okta not to perform that contract with Jetoil. Jetoil submitted that, from July 1999 at the latest, Okta had decided to deal instead with another Greek oil company, Hellenic Petroleum SA (“Hellenic”). This was because, by July 1999 Hellenic, through a joint venture company called EL.P.ET (“Elpet”), had obtained a significant shareholding interest in Okta as a result of the privatisation in early 1999 of what had been a corporation wholly owned by FYROM.

Jetoil’s case was and is that, once Okta had come under the control of Hellenic in July 1999, Okta may have had no realistic commercial choice but to deal with Hellenic, even though that was a breach of the 1993 contract. Hellenic wished both to supply and handle the non–heated crude oil that Okta needed to purchase. Thus Okta decided that it would break its contract with Jetoil and would deal only with Hellenic.

On a without notice application made to (as it happened) myself as a judge of the Commercial Court on 11th November 1999, I granted an injunction for 7 days preventing Okta from allowing anyone other than Jetoil to manipulate crude oil destined for their refinery. Jetoil’s case is that Okta thereafter persuaded the FYROM government to issue a “request” to Okta not to perform the 1993 contract. Jetoil submits that, as a result of this persuasion of Okta, the FYROM Minister of Trade signed and sent the letters of 16th and 26th November 1999 to Okta. Therefore the letters were not truly a case of a “request of any governmental authority” not to perform the 1993 contract. In January 2000, Thomas J decided that the 1993 contract expired on 31st December 1999. That meant that Okta could not be in breach of contract after that date, but in March 2001 the Court of Appeal reversed that decision and held that the contract continued until March 2003. FYROM then issued the request of 30th May 2001 in relation to which similar arguments are made as in relation to the November letters.

The Claimant in the second action (“Moil–Coal”), is a Cypriot company. They contended that they entered into an oil supply contract with Okta in 1998 for the supply of 500,000 MT of crude oil over a period of one year from September 1998 to 1999 (“the oil supply contract”). In this second action (2001 Folio 528), Moil-Coal claim damages for breach of the oil supply contract. Okta argue that the contract terms are too vague to be enforceable and that, although Okta accepted and paid for about 290,000 metric tons pursuant to the supposed contract, they are not liable for refusing to accept the balance.

The full force majeure clause is contained in clause 4 of an Annex to the contract and provides, if one corrects obvious errors, as follows:-

“4

Neither party shall be responsible for damage caused by delay or failure to perform in whole or in part the stipulations of the present Agreement, when such delay or failure is attributable to earthquakes, acts of God, strikes, riots, rebellion, hostilities, fire, flood, acts or compliance with requests of any governmental or EC authority, war conditions or other causes beyond the control of the party affected, whether or not similar to those enumerated.

The party invoking force majeur, shall give prompt notice to the other party by fax, telex followed by registered letter stating the kind of Force Majeure.

The certificate issued by the respective Chamber of Commerce and Industry shall be considered as sufficient proof of such circumstances and their duration.”

The judge annexed the letters of 16th, 26th November and 30th May 2001 to his judgment. He held (and this is not now challenged) that they did constitute requests to Okta not to perform the 1993 contract. He held, however, that the failure to perform the contract was not attributable to such request because, in relation to the November letters, (1) the requests could not be characterised as governmental and (2) the failure to perform was not attributable to such requests (paras. 107 - 108 of the judgment). In relation to the May letter, he came to the same decision for both those reasons and also because the letter was instigated by Okta and their lawyers and was not a request made “independently” of the party requested (paras. 130 – 131). He did not, at any rate explicitly, give the latter reason in relation to the November letters.

The clause must, of course be read as a whole. Sir Sydney Kentridge QC (who did not appear below) submitted that a force majeure clause which included an exemption for compliance with mere requests of government, in addition to acts of government which prevented performance, was most unusual and should be “generously” interpreted, since the contract was not an ordinary commercial contract. He further submitted that each of the 3 reasons given by the judge was wrong. He nevertheless accepted (plainly rightly) that the clause did not exempt Okta from liability for any failure to perform attributable to a request of a governmental authority but only for a failure which was attributable to a request of a governmental authority beyond Okta’s control. He submitted that the government was not within Okta’s control and that the decision to request Okta not to perform was not within Okta’s control either. The fact that Okta might have instigated or initiated the procedure whereby the government made the request was, he said, nothing to the point. As he pithily put it:-

“If Okta request the government to request them (Okta) not to perform, it is not within Okta’s control that their request will be granted.”

The position is not, in my judgment, so straightforward as Sir Sydney suggests. The question is not whether the request of the governmental authority is within the control of Okta but, rather, whether it is beyond the control of Okta. For Okta to be able to rely on the clause they have to show that the failure to perform is attributable to a request, which was beyond Okta’s control. It is for this reason that the judge said that the request must be made “independently” of the party that is requested. Any criticism of the judge’s use of the word “independently” is a criticism of terminology rather than of substance. The essential issue is whether, if it is the case that Okta instigated or initiated the requests contained in the November and May letters, they can rely on the letters as constituting “requests . . . . beyond their control”. Once the question is posed in that form, it is clear that they cannot, for the simple reason that they need not have set the process in motion at all. They could, instead, have decided to comply with their contractual obligations.

I come to this conclusion as a matter of construction of the clause. But if authority is needed, it can be found in Channel Island Ferries Ltd v Sealink UK Ltd [1998] 1 Lloyds Rep 323. The parties entered into a joint venture agreement whereby Sealink were to provide to a new company two vessels on bareboat charter terms. They did not do so because the crews of the vessels took industrial action including sit-ins on the vessels. When sued, Sealink relied on a force majeure clause excusing liability for non-performance in the event of:-

“. . . . strikes . . . and any accident or incident of any nature beyond the control of the relevant party.”

Hirst J recorded with approval Sealink’s concession that they had to show that there were no reasonable steps they could have taken to avoid or mitigate the strike and its consequences. He held that Sealink were able to take such steps by eg increasing the crew’s wages and thus settling the dispute. The Court of Appeal upheld that decision, Parker LJ saying (at page 327):-

“a party must not only bring himself within the clause but must show that he has taken all reasonable steps to avoid its operation or mitigate its results.”

Ralph Gibson LJ and Caulfield J agreed at pages 328 and 329 respectively.

The question is, therefore, whether Okta did, indeed, instigate or initiate the requests contained in the letters of November 1999 and May 2001.

In paragraphs 56 – 92 the judge made his primary findings of fact in relation to the circumstances in which the November letters came to be written by the FYROM Minister of Trade to Okta. He found (para. 79) that on 12th November 1999 (the day after the Commercial Court injunction) the Managing Director of Okta, Mr Karachalios, told the gentleman, who was both the President of Okta and the Secretary General of FYROM and thus the senior civil servant of the Macedonian Government, Mr Kotev, that the injunction presented Okta with two problems. One problem was that Okta had made two contracts with Hellenic for the supply and handling of crude oil but the injunction required Jetoil to handle the cargoes supplied pursuant to the 1993 contract; the second (longer term) problem was that the injunction required Okta to use Jetoil for the supply and handling of all oil bought by Okta for their own account. After this there were conversations between Mr Karachalios, the legal adviser to the Macedonian Government (Professor Galev) and Okta’s Greek and English Lawyers (Mr Potamitis and Mr Asserson, a partner of Bird and Bird, respectively). As a result of these discussions, Mr Potamitis on 15th November sent to Mr Karachalios and Mr Asserson a draft letter to be sent by FYROM’s Minister of Trade to Okta in the following terms:-

“We are a competent Governmental authority of the Republic of Macedonia for matters relating to the supply of energy and a supervisory authority of the refinery operated by your company.

We have been advised in writing by a Greek company named Mamidoil – Jetoil Greek Petroleum Company SA that there is a written contract between that company and OKTA (dated 5 March 1993 with subsequent amendments) that purports to limit your ability to obtain handling services for the crude oil you require.

Regardless of the binding nature of the contract to which reference is made, in view of the significance of the supply of crude oil for the Republic of Macedonia and of the extremely serious adverse interference with such supply we hereby instruct you to give no effect, as of today, to any of the provisions of that document. We understand that under the terms of that document you are expected to comply with our instructions which are deemed to be force majeure.

The Minister.”

On the following morning, 16th November, a meeting took place with the Prime Minister. Mr Kotev and Mr Karachalios were both present. Mr Karachalios told the Prime Minister of the problems he had already explained to Mr Kotev and the Prime Minister gave instructions (1) that, in order to protect the interests of the country, the Minister of Trade was to issue a letter to Okta and (2) that “the Force Majeure letter be sent”. Thereafter Mr Karachalios and Professor Galev went to Okta’s office to discuss the proposed letter. Professor Galev had Mr Potamitis’ draft and used that to draft the final version of the letter. That final version was approved by the Prime Minister that evening and it was, later that day, signed by the Minister of Trade, Mr Gruevski, who apparently believed when he signed the letter that Hellenic was providing oil more cheaply than Jetoil. That belief was erroneous. The letter (which Okta received about the time it was signed but did not send to Jetoil until 5th June 2001) was in the following terms:-

“[crest]

Government of the Republic of Macedonia

Ministry of Trade

No.0814-7094/1

16.11.1999

SKOPJE

To

“OKTA” Crude Oil Refinery A.D.

SKOPJE

Dear Sirs,

We are a State body of the Republic of Macedonia authorised to deal with matters connected with energy provision and a supervisory body of the refinery which your company manages.

We have been informed by a Greek company named Mamidol – Jetoil Greek Petroleum Company S.A. that there is a written agreement between this company and Okta (of 05 March 1993, with subsequent amendments) regarding the restriction of your ability to ship the crude oil which you purchase. However, based on the fact that, in respect of your agreement with the above-mentioned company, you requested their assistance for the shipping and the expedition of crude oil at a price, which was offered to you by another Greek company, and which for you was more favourable, the above company did not accept this price. It is thus clear to us that in this way it has violated the above-mentioned agreement and thereby cannot restrict your rights regarding the shipping and expedition of the crude oil, which you purchase for your requirements.

Given this situation and disregarding the above-mentioned agreement which has been violated by the other party and taking into account the importance of the provision of crude oil for the Republic of Macedonia and also in view of the extremely negative influence of such a provision, we hereby instruct you to continue to supply the refinery with crude oil from a partner which you consider most favourable to you. Given this situation, the clauses of the agreement should not be considered as obligatory for you. We consider that according to the conditions of this document you should agree with our instructions, which are considered to be force majeure (Annex to the primary agreement – 060393 para 4).

The Minister

Nicola Gruevski

[stamp]

Ministry of Trade

Republic of Macedonia”

The second letter of 26th November came into existence between 18th November after Thomas J heard the parties on the return date for the injunction and adjourned the full inter-party hearing to 30th November to enable fresh evidence to be filed. Mr Gruevski said in evidence that this second letter was sent on legal advice in order to emphasise the importance to Macedonia of a supply of crude oil. A copy was sent to Mr Asserson of Bird and Bird for the purpose of the hearing on 30th November but in the event Mr Asserson did not use the letter at the hearing because he thought that the letter gave Okta a measure of control over events and so did not properly activate the force majeure clause. This second letter was not sent by Okta to Jetoil either at the time it was written or, it appears, at any later time (see paragraphs 92 and 124 of the judgment). It thus falls out of the picture. No separate reliance was placed on the letter before us and it is unnecessary to set it out.

The judge then addressed the interpretation of the letters and concluded, contrary to Jetoil’s submission, that the letters did constitute a “request” by the Minister of Trade to Okta not to continue to perform the 1993 contract. That conclusion is not now challenged.

Thereafter, the judge proceeded to consider whether Okta’s failure to perform was attributable to compliance with the request of a governmental authority and thus within the force majeure clause. He repeated his earlier findings (1) that Mr Karachalios had initiated the discussions with Mr Kotev, (2) that Mr Potamitis and Mr Asserson had discussed the idea of asking the government to request Okta to cease performing the 1993 contract and (3) that Mr Potamitis had produced a draft letter to Mr Karachalios which Professor Galev used when formulating the final version for approval by the Prime Minister and signature by the Minister of Trade on 16th November. He then concluded that Okta’s failure to perform was not attributable to the request of a governmental authority because, in the first place, the request was not governmental and because, secondly, Okta’s failure to perform was not attributable to the request even in part.

It is a remarkable fact that neither of the November 1999 letters was invoked by Okta as justification for their failure to perform the 1993 contract at the time; they were not produced to Jetoil or their advisers until 2001. The reason for this must be that at the inter-party hearing on 30th November Thomas J discharged the injunction (on the basis that the balance of convenience required Okta’s current arrangements to continue) and ordered that the question, whether the 1993 contract was to be treated as at an end if the parties could not agree a price for manipulation services to be provided after 1 January 2000, be determined as one of a number of preliminary issues. On 26th January 2000 he decided that the 1993 contract expired on 31st December 1999. That no doubt took the heat out of the situation and it was not until 22nd January 2001, a fortnight before the hearing of Jetoil’s appeal to the Court of Appeal, that the subject seems to have been again discussed.

By that time Mr Karachalios had been replaced as managing director of Okta by a Mr Karalis. On 22nd January 2001 a high level meeting took place in Skopje between Mr Karalis, Mr Kotev, Professor Galev, Mr Potamitis and Mr Asserson. Mr Asserson recorded that Okta continued to want to trade with Hellenic rather than with Mr Mamidakis of Jetoil. He (Mr Asserson) had seen the 16th November letter but believed that, in any event in translation, it did not make the Government’s reasons clear. He was, therefore, asked to produce a draft letter clarifying the Government’s intentions. The parties appear to have awaited the Court of Appeal’s decision, which became available on 22nd March 2001, and Mr Asserson then sent a draft letter to Mr Karalis under cover of a letter of 4th April 2001. On 18th April, at what the judge described as “an Elpet gathering”, Mr Karalis convened a meeting to discuss the Court of Appeal decision; that was attended by Mr Kotev, Professor Galev, Mr Potamitis, Mr Asserson and Okta’s in-house counsel Miss Maslarkova. The meeting agreed that a further “force majeure letter” would be produced and that this letter would be sent to Jetoil with the original (as yet unsent) force majeure letter. A short delay occurred while the republic elected a new Prime Minister but on 8th May 2001 Mr Asserson and Mr Potamitis agreed that Okta should “go for force majeure”. There was also some discussion that day as to the precise form of the letter. Mr Asserson produced a second draft of this new force majeure letter on 10th May contemplating that it be sent by the Minister of Trade to Okta. A third draft was produced on 14th May. Jetoil’s solicitors had meanwhile been pressing for confirmation that Okta would honour their obligations under the 1993 contract as construed by the English Court of Appeal and on 18th May Mr Asserson said to Mr Karalis that it was imperative that the letter, which Bird and Bird had drafted for the Macedonian government, was signed as soon as possible so that it could be used in reply to Jetoil’s solicitors. As the judge observed (para. 122):-

“it is implicit in Mr Asserson’s letter that Okta must persuade the FYROM government to send a force majeure letter or else Okta will be unable to resist a claim for substantial damages by Jetoil for breach of the 1993 contract.”

On 28th May Mr Potamitis prepared another draft which was sent to Mr Karalis. At a meeting between 28th and 30th May that draft (now in the Macedonian language) was further refined and signed by the then Minister for Economic Affairs, Mr Fetai, on 30th May 2001. A copy of the final letter was sent to Mr Asserson on that day. Bird and Bird then wrote to Jetoil’s solicitors on 5th June enclosing originals and translations of both the letters of 16th November 1999 and 30th May 2001 and stating that the force majeure provision of the 1993 contract had been effectively invoked. The letter of 30th May was in these terms:-

“Government of the Republic of Macedonia

Ministry of Economic Affairs

No. 24-4149

30.05.2001

Skopje

To

“OKTA” Crude Oil Refinery A.D. Skopje

Re: Letter No. 01814-7094/1 of 16 November 1999

Dear Sirs

I refer to our letter of 16 November 1999 (“the Letter”). With our new letter I can confirm and reaffirm the position taken by the Ministry of Economic Affairs, which is the competent government authority of the Republic of Macedonia for matters relating to energy supply and a supervisory boy(sic) of the Refinery which is under the management of your company as expressed in the letter of 16 November 1999.

In order to avoid any kind of doubt in connection with the Letter of 16 November 1999 we request/require you not to implement any part of the document that seems to have been concluded between the refinery and the Greek company Mamidoil-Jetoil Greek petroleum – Company S.A. of 5 March 1993.

In view of the importance of the supply of crude oil for our total economy and the state, especially in the newly-arisen present situation and circumstances in which the country finds itself, you can realise the supply of crude oil and its manipulation under the conditions you will decide on for commercial convenience in the context of the reliability of relations that might beneficially affect the national economy.

We consider that, in accordance with this document, you should concur with our instructions which, if the Annex to the basic document of 5.03.1993. is valid, point 4 is considered to be force majeure.

THE MINISTER

[illegible]

[signature and stamp – illegible]”

The judge concluded that the letter of 30th May was, indeed, a request, like the letter of 16th November, but again decided that it was not a request by a governmental authority nor was the failure to perform attributable to that request. This conclusion is based on the same reasoning he had already applied to the 16th November letter. He also specifically addressed the question whether the letter was sent “independently” of Okta and made the following further finding:-

“127.

In my view the evidence establishes that it was Okta and Elpet, as advised by their lawyers, who decided that a new force majeure letter must be produced by the government. All the early drafts were produced by Okta’s lawyers. Okta needed a letter because, as its English lawyers recognised after the Court of Appeal’s decision in March 2001, without it Jetoil had a cast-iron case against Okta for breach of contract and damages. So the FYROM government had to be persuaded to produce a letter that would apparently avoid that result.”

He then concluded on this point in paragraph 130 that he was not satisfied that the letter of 30th May was made independently of Okta:-

“the letter was instigated by Okta and its lawyers, was drafted by them and was then presented to the government to sign. There was no evidence before me that the government gave any independent consideration to the issue at all.”

The reason why the judge put the matter in this way is that at paragraph 55(3) of his judgment when explaining his construction of the clause he said:-

“The ‘request of the governmental authority’ must be one that is made independently of the party that is requested. I think that this construction follows from my conclusion [in 55(1)] that the request must be governmental in nature. It is also consistent with the nature of the other particular events set out in the clause and the general wording at the end of the particular events, enabling a party to rely on ‘other causes beyond the control of the party affected’. In my view the wording of the clause taken together contemplates that each of the potential force majeure events will be something which is beyond the control of the party affected.”

It is here made clear that the use of the word “independently” by the judge is used as a shorthand explanation of “beyond Okta’s control”. So understood the judge’s decision in relation to the 30th May 2001 letter is that, because Okta instigated or initiated the process of procuring that that letter be sent, the request was not made independently and was not beyond Okta’s control.

Sir Sydney criticised the last sentence of paragraph 130, pointing out that the evidence did not suggest that the Minister, Mr Fetai, who signed the letter, was prepared to do whatever Okta asked and that the Minister must have genuinely believed what the letter said about the national economy in its third paragraph. That may be a valid criticism of that particular sentence of the judgment but it is nothing to the point on the question of substance, viz. whether the request was beyond Okta’s control. Plainly it was not.

I come to exactly the same conclusion in relation to the November 1999 letter. In relation to the request contained in that letter, the judge did not expressly address the question whether the request was made “independently” of Okta or whether it was beyond Okta’s control. But, in my judgment, the judge, by holding that the failure to perform was not attributable to the request of the government, implicitly decided that the request was not beyond Okta’s control. It is, in any event, clear on the judge’s findings as to the origin of the letter as set out in his judgment and summarised at paragraphs 15 and 16 above that a decision to that effect was and is inevitable.

For these reasons, I would dismiss the appeal in relation to the 1993 contracts.

Sir Sydney criticised other parts of the judge’s reasoning. In particular he criticised the conclusions (1) that the requests contained in the letters were not “governmental” and (2) that Okta’s failure to perform was not attributable to the request but to their antecedent decision to break the 1993 contract. These criticisms, even if justified, can make no difference to the disposition of the appeal but I should deal with them briefly.

The judge held that there was not a request of a governmental authority because a request could not be governmental unless it was for the general good or a public, as opposed to a private, purpose. Here the very object of the request was the private one of ensuring that Okta did not have to perform its contractual obligations so the request could not be governmental. The judge relied for this purpose on certain dicta in Czarnikow Ltd v Centrala Handlu Zagranicznego Rolimpex [1979] AC 351, 363-4 per Lord Wilberforce and 370 per Lord Salmon.

Sir Sydney submitted that the judge was wrong to embark on an examination of the government’s purposes; such purposes will, he said, almost always be mixed and there was evidence from the letters themselves that the government was acting (or, at least, thought it was acting) for the general good of the Macedonian republic. Moreover, said Sir Sydney, the clause itself contemplated a request not to perform and so the object of the request had to be just that for the clause to come into operation at all.

There is, I think, some substance in Sir Sydney’s submission. The dicta of Lord Wilberforce and Lord Salmon in Czarnikow v Rolimpex are phrased very cautiously. In the later case of Buttes Gas and Oil Co v Hammer [ 1982] AC 888 Lord Wilberforce said at pages 931 – 932 that the motives of governments are not justiciable and courts should refrain from adjudicating upon them. There is in any event a stark distinction between the facts of the present case and the facts of the Czarnikow where, as appears from the findings of the arbitrators as set out in the judgment of Kerr J [1977] 2 Lloyds Rep 201 at pages 255 – 6, Rolimpex had no input into the decision of the Polish Government to ban the export of sugar and argued strongly against it when it did occur.

The judge’s decision that the only effective cause of Okta’s non-performance of the 1993 contract was its own decision to break that contract can also be criticised as somewhat incomplete. As Sir Sydney pointed out an event of force majeure is capable of excusing a failure to perform after the occurrence of such an event, even if the failure to perform already existed when the event occurred. It has been clear since Avery v Bowden (1855) 5 E&B 714 that a frustrating event (there the Crimean War) could excuse further performance of a contract even if the relevant party was already in breach; there can hardly be any difference between a force majeure and a frustrating event for this purpose. But the force majeure event, if it is to be effective, still has to be beyond the control of the party affected. So this possible criticism of the judge’s reasoning cannot assist Okta’s case on this appeal.

Jetoil argued that even if the November 1999 letter did justify non-performance, in theory, it could not do so in fact, because notice had not been given until June 2001. Okta accepted that such notice was not prompt but argued that, if there were a force majeure event, they could still rely on it; Jetoil would merely have a claim for damages if they could show that they had suffered any loss as a result of the notice not being a prompt notice.

There is much to be said for the judge’s view that the implication behind the imperative “shall” in the phrase “a party invoking force majeure shall give prompt notice” is that if the party does not give such notice then it cannot rely on force majeure. As Mr Eder QC said, in seeking to uphold the judge’s decision, there is no obligation to serve a notice, it is just that until such notice is given, force majeure cannot be relied on.

While acknowledging the force of that contention, I would prefer to leave the question undecided since this appeal does not turn on the point. I have already said that it is remarkable that notice of the request contained in the letter of November 1999 was not given until June 2001. One cannot help feeling that if the request contained in the letter really had been beyond Okta’s control, Okta would have given notice of it at once, just as Rolimpex gave immediate notice to Czarnikow of the Polish sugar ban. The present appeal is so fact specific that it would be unwise to express even an obiter view on whether the requirement that prompt notice be given should be regarded as a condition of the contract.

The judge dealt with this question briefly. The contract was for the supply of about 500,000 metric tons of crude oil between September 1998 and August/September 1999 at a price stated to be “DTD Brent” (viz. the price for oil from the Brent field on a particular date) plus a premium or minus a discount. There was then a specific pricing clause in the following terms:-

“5.

PRICING

For each type of crude oil will be applied the pricing which will be more or less the common practice at the time of nomination. E.g. the average of the means of 3 or 5 quotations after B/L date. A certain number of quotations before/after or around NOR at discharge port etc. The precise pricing will be given by Seller to Buyer together with the nomination of a cargo. Buyer has the right not to accept the proposed pricing and suggest an alternative.”

Okta’s argument was that this clause was too vague to be enforceable, that there was, therefore, no contractual mechanism for fixing the price and the whole contract was, therefore, unenforceable.

In fact, over 290,000 tons of crude oil had been supplied pursuant to the contract before Okta declined to accept any further deliveries in July of 1999. No difficulty seems to have been experienced in agreeing a price for that oil and Okta had, indeed, paid for it. The first time Okta said that there was no contract was a few weeks before trial.

The judge rightly said that the question was whether the parties had agreed some mechanism for determining the price. The evidence relating to price was that Moil-Coal as supplier would try to ensure that the pricing was done on a back to back basis with their own supplier. Once Moil-Coal knew what Okta’s requirements were they would contact their suppliers who would nominate a vessel. Moil-Coal would then propose as a price the average of the mean price for Dated Brent crude for three or five quotations as set out in the well-known Platt’s Crude Oil Marketwise publication, after the bill of lading date or the nomination of the vessel, depending on which range of quotations Moil-Coal’s own supplier had themselves chosen. They would then add a premium or subtract a discount in accordance with clause 4 of the contract. The price so proposed was never challenged by Okta. If it had been, the parties could have asked an oil broker to determine the price or (if no agreement to take that sensible course had been forthcoming) there would, in my judgment, have been no difficulty in the court doing so. In the light of the fact that the parties were able to operate the contract without difficulty, I consider it impossible to say that the contract was too vague or uncertain to be enforceable. All the rest of the terms of the “agreement” for quantity, quality and delivery look and sound contractual. To hold that the whole arrangement fails for uncertainty would defeat the proper expectations of the parties. The fact that Okta are entitled to challenge the price proposed by Moil-Coal is itself a strong indication that a legally binding commitment has been made, provided that a mechanism exists for resolving any dispute. Since courts exist for that very purpose, there is nothing vague or uncertain in the pricing clause or in the contract as a whole.

The main point made by Mr Lightman, who assumed the burden of Okta’s argument in relation to the 1998 contract, was that the judge should not have found (and then relied on) a course of dealing in executing the contract. Since there was a course of dealing constituting the way in which the parties in fact conducted themselves pursuant to the “contract”, there is no reason why the judge should not have so found. Mr Lightman was, no doubt, correct to say that the question whether a binding contract has been made must be judged at the time the alleged contract came into existence; but it does not by any means follow that, if the allegation is that a term of the contract is so vague that the whole contract is insufficiently certain to be enforced, the court cannot test that proposition by looking at the evidence of how the parties worked out their obligations under the contract. If the parties could operate the contract, it is possible and right for the court to do so also. That is the reason why the judge correctly referred to the course of dealing; he was not constructing a contract by reference to the subsequent conduct of the parties as Mr Lightman appeared to suggest.

Mr Lightman then fastened on the third factor in the course of dealing as found by the judge that “Okta had the right to challenge the price fixed in this way, in which case the parties had to agree a reasonable price for the oil sold in that shipment” and said that that showed there was only an agreement to agree which was unenforceable. But that reads too much into the finding. The judge was not saying that that was the end of the matter. As I have already indicated, if the parties were sensible, they would agree that an oil broker should resolve any difference between them. If it is too optimistic to assume good sense on the part of the parties, the court would have to decide. But that is not at all unusual. As I have already said, the possible need for such a procedure does not mean that the contract is unenforceable.

The judge was, therefore, right to conclude that the parties had agreed a mechanism for determining price and that the oil supply agreement was a valid contract.

On both the 1993 and 1998 contracts, I therefore agree with the judge’s decisions and would dismiss both Okta’s appeals.

I agree.

I also agree.